The 10-year Treasury yield surged to 4.40% as markets weakened, stocks tumbled broadly, oil and gold fell, the dollar strengthened, and Bitcoin gained 2.30%.

The yield on 10-year U.S. Treasury bonds has climbed above 4.40%, rebounding sharply from a low of 3.60% on September 17, the day before the Federal Reserve announced its 50 bp rate cut. While the Fed directly controls short-term interest rates, it has limited influence over the long end of the yield curve, which plays a critical role in determining U.S. interest spending. The yield curve is steepening notably, with approximately 60% of the Treasury curve now inverted, down from 90% just a few months ago.

U.S. stock markets ended the week sharply lower, reversing gains from the previous week. Wall Street faced significant losses as market sentiment weakened. Trendy growth-sector stocks like Hims (-22%) or Sow Good (-63.88%) suffered steep declines, with the latter heavily impacted by disappointing earnings. Vaccine manufacturers also faced challenges, with Moderna plunging over 21% and Pfizer dropping 7%. Micro- and small-cap stocks fell 5% and 4%, respectively, while large-cap stocks declined 2.10%. The "Magnificent 7" collectively lost 3%.

The U.S. dollar strengthened against the euro, reaching 0.9486. Meanwhile, WTI crude oil prices fell nearly 5%, driven by expectations that global crude supplies will surpass demand by over one million barrels per day in the coming year. Gold prices dropped 4.61%, pressured by the dollar’s strength and concerns that Trump’s policies might delay future Fed rate cuts. Bitcoin, however, bucked the trend, gaining 2.30% over the week.

October saw elevated inflation, modest retail sales growth, and a decline in industrial production, but sentiment improved, with expectations for recovery and policy-driven boosts.

U.S. inflation remained elevated, with the headline CPI rising 2.6% YoY and core CPI at 3.3%. Housing, services, and transportation drove price increases, with significant jumps in used vehicle prices and airline fares. Despite minor moderation in some areas, inflation pressures remain above the Federal Reserve's 2% target, especially in core sectors. Retail sales grew 0.4% MoM, led by electronics, autos, and dining, although the "control" group showed a slight decline. Weakness was noted in furniture and health-related sectors, likely due to hurricane recovery and weather impacts. Industrial production declined 0.3% in October, hindered by strikes and hurricanes, with manufacturing output down 0.5%. However, sentiment improved sharply, reflected in the NY Fed Empire Manufacturing survey, which reached its highest level in nearly three years. Expectations for recovery and policy changes suggest a potential boost in future manufacturing performance.

October’s headline CPI rose 2.6% YoY, with core inflation at 3.3%. Elevated prices in housing, services, and transportation suggest persistent inflation above target.

The headline CPI, which captures all categories, rose by 2.6% YoY in October, with a modest monthly gain of 0.2%. The 3-month annualized headline rate climbed to 2.5% from 2.1%, while the 6-month rate eased slightly to 1.4% from 1.6%. Meanwhile, core CPI, excluding volatile food and energy items, saw a 0.3% increase MoM, resulting in a 3.3% YoY gain. On an annualized basis, the core CPI's 3-month rate moved up to 3.6% from 3.1%, with the 6-month rate holding steady at 2.6%. These figures remain elevated relative to the Federal Reserve's 2% inflation target, particularly in core terms, which is a key indicator of underlying inflationary pressures.

Driving these increases was a sharp 2.7% rise in used vehicle prices, attributed to hurricane-related property destruction, alongside a 3.2% uptick in airline fares and ongoing strength in housing and services inflation. Shelter costs rose by 4.9%, while transportation inflation remained high at 8.2%, though with slight moderation. Inflation in the services sector also rose by 4.9%, underscoring persistent inflationary pressures within the economy.

Although inflation has not accelerated significantly, the persistence of elevated prices indicates that Fed policymakers may require additional time to guide inflation closer to their 2% target, particularly with the potential inflationary impact of Trump’s recent policy agenda. We anticipate that inflation will remain sticky, with a likelihood of slight increases due to these new fiscal and economic policies.

U.S. retail sales rose 0.4% in October, driven by electronics, autos, and dining. Despite some weaknesses, a strong labour market supports a positive outlook for November and December.

U.S. retail sales rose 0.4% MoM in October, slightly exceeding the consensus expectation of 0.3%, while September’s growth was revised upward from 0.4% to 0.8%. Gains were led by electronics and appliance stores (+2.3%), autos (+1.6%), restaurants and bars (+0.7%), and building materials (+0.5%). However, the “control” group, which excludes volatile categories like autos, gasoline, and building materials, fell 0.1% versus expectations of a 0.3% increase, though September’s figure was revised sharply higher to +1.2%. Weakness was concentrated in furniture (-1.3%), health and personal care (-1.1%), sporting goods (-1.1%), and miscellaneous retail (-1.6%), while other categories showed modest changes between -0.2% and +0.3%. Hurricane recovery and warm weather likely influenced the data, boosting spending on dining out while reducing demand for furniture and clothing. Despite these fluctuations, the underlying trend remains firm, supported by a strong labour market, 18 months of real wage growth, and expected hurricane-related rebuilding in November, positioning households well for the holiday spending season.

We expect retail sales to improve in November and December. November’s data is anticipated to reflect a rise in building materials, fuelled by hurricane recovery efforts in the southeastern United States, as well as increased vehicle sales. Additionally, the holiday season will also contribute to a boost in retail sales during the last two months of the year.

U.S. manufacturing output declined in October, hindered by strikes and hurricanes, but sentiment improved significantly, with the NY Fed Empire Manufacturing survey surging to its highest level in nearly three years.

U.S. manufacturing output faced challenges in October, with industrial production declining by 0.3%, slightly better than the anticipated -0.4%, though September’s output was revised downward to -0.5%. Manufacturing output fell 0.5%, largely due to the impact of a Boeing strike, which caused transportation output to plummet 13.9% MoM, following a 14.9% drop in September. Auto production also decreased for the second consecutive month, while other sectors displayed mixed results. Regional disruptions from hurricanes and strikes contributed 0.3 percentage points to the decline in industrial production, yet even excluding these factors, the sector still contracted. Utilities output increased by 0.7%, and mining rose by 0.3%. Despite these setbacks, sentiment improved sharply, as evidenced by the NY Fed Empire Manufacturing survey, which surged from -11.9 to +31.2, the highest reading in nearly three years. Although this reflects more of a shift in perceptions than a broad-based recovery, the result appears to be influenced by expectations of tax cuts and potential tariff adjustments following Trump’s victory, signalling a notable change in sentiment.

We anticipate a slight increase in industrial production in the coming quarter, as the impact of the hurricane is now behind us and recovery is underway. Additionally, with Trump’s policies and the strong NY Fed survey, we expect a potential boost in the upcoming ISM Manufacturing PMI.